Singapore May Revise Plans
To Raise City-State Sales Tax

Prompted by Dismal Economy,
Move Could Help Retail Sales

SINGAPORE -- A souring economy could force Singapore to revise plans to raise the city-state's sales tax Jan. 1, a move that would cut government revenue, but might boost weak retail sales.

Prime Minister Goh Chok Tong, declaring that the economy "has taken a turn for the worse," said Sunday that the government will review a plan to raise Singapore's goods and services tax, or GST, to 5% from 3% Jan. 1. His remarks came just 10 days after Deputy Prime Minister and Finance Minister Lee Hsien Loong said the government would proceed with the tax increase.

The policy shift comes amid fresh signs that expansion is slowing. Last week, Singapore cut this year's inflation-adjusted growth forecast to between 2% and 2.5% from between 3% and 4%. The government also announced that on an annualized basis, the economy contracted 10.1% in the quarter ended Sept. 30, compared with the preceding quarter.

Some analysts suggest the economy -- which shrank 2% in 2001 -- could continue to contract in the current quarter, pushing Singapore back into recession. Singapore media quoted Mr. Goh as saying he thinks such a double-dip recession "is not quite likely." But he acknowledged that the third-quarter results "are no good, so there's an air of uncertainty."

Mr. Goh's remarks indicate that he is worried that raising the GST to 5% would be a particularly unpopular move at a time of rising unemployment, economists and political analysts said. Many Singaporeans have complained about the tax increase, and some members of Mr. Goh's ruling People's Action Party have asked to delay it. Postponing or changing the tax plan would be an unusual move for the PAP government, which has dominated politics since Singapore's independence in 1965 and has seldom altered an announced policy because of public opposition.

Mr. Goh hinted Sunday that the government might raise the GST in phases, saying that the government could "probably do with less revenue for half a year." He said that a final decision on the tax-increase schedule will be made in about two weeks. If the government sticks with its original plant to lift the GST to 5% Jan. 1, Mr. Goh promised that measures, which he didn't specify, will be taken to help poor Singaporeans cope with it.

Rajeev Malik, regional economist with J.P. Morgan Chase Bank, called Mr. Goh's remarks about reviewing the planned GST increase "surprising." He predicted the government might raise the GST to 4% Jan. 1 and to 5% in early 2004, moves he said would be "marginally positive for consumer psychology."

The GST boost is a part of a comprehensive tax-reform effort in which income taxes have been cut to entice new investment. About 65% of adult Singaporeans pay no income tax, so for them the increased GST tax would mean higher overall tax payments.

Mr. Lee, the deputy prime minister, has said that it is essential to raise the GST to 5% to make up for the revenue loss that the government will face from reduced income taxes.